Big flaws plague small claims

The Driver Solutions facility, at 3603 E. Raymond St, Indianapolis, Monday, July 22, 2013. Complaints about the facility have been reported, and involve lawsuits by the company against individual students to recoup training fees. Robert Scheer/The Star(Photo: Robert Scheer/The Star)

A judge in Marion County's unique — and some say flawed — small claims court system ordered Fred King to pay $8,338.82.

He did so, in part, because King didn't bother to show up in court.

Yet if King's case file is any indication, he had no idea he was being sued.

A month after the judge ruled in 2011, a court notice sent to King — the very notice that was supposed to let him know he'd been sued — arrived at the Warren Township Small Claims Court with a yellow "return to sender" sticker attached. "Moved," the label said, "left no address."

The case — along with others filed by Indianapolis-based Driver Solutions — illustrates a number of chronic problems that have plagued Marion County's nine township-based small claims courts for more than a decade.

The Indiana State Bar Association and a special judicial task force have criticized the small claims courts for failing to properly notify defendants and having cozy relationships and special access for large-volume plaintiffs, such as Driver Solutions.

An Indianapolis Star investigation — triggered by a local attorney's own report — showed many of those problems persist despite efforts to fix them. It also identified a loophole in state law that allows companies in Marion County to collect far more than the $6,000 small claims limit.

Last year, the Marion County Small Claims Task Force called for the small claims courts to be moved into the Marion Superior Court system, a shift that would require legislative action. Indiana Court of Appeals Judge John Baker said similar calls for reform, dating back to 1998, were ignored.

"When the legislature or those responsible don't know of a problem, they can't be expected to fix it," Baker said. "But when group after group makes recommendations for changes and those recommendations are ignored, that's unforgivable."

A way around the caps

The biggest incentive for companies to file small claims cases in Marion County may be in a tiny exemption written into state law.

Small claims courts are designed to handle disputes involving relatively small amounts of money. In 91 of the state's 92 counties, that limit is $6,000. Any creditor trying to collect more than that must file in the more stringent Superior Court system.

But in Marion County, there's a wrinkle: interest and collection costs don't count against the $6,000 cap. Legal experts consulted by The Star were not sure why.

Driver Solutions, an Indianapolis-based truck driving school with locations in four states, appeared to take full advantage of that quirk. The company charged students $5,995 in tuition, just $5 under the cap, allowing it to file in small claims court. But it also charged 18 percent interest.

By the time Driver Solutions filed a small claims case against a former student, that student often owed more in interest and court fees than in unpaid tuition.

Indianapolis-based attorney Jeff Boulden represented some Driver Solutions defendants when he was working for Indiana Legal Services, a nonprofit whose lawyers represent low-income clients in civil cases. He was concerned by what he saw.

Boulden, who later was let go from the nonprofit, reviewed about 1,800 of the more than 12,500 small claims cases Driver Solutions has filed since 2008. In about 70 percent of those cases that resulted in judgments, the award was more than $6,000. More than 25 percent of the time, each defendant owed more than $10,000. And, in a handful of cases, the number was $15,000 or higher. One defendant owed $19,632.52.

Boulden, who recently submitted a report to the Indiana Supreme Court and others, said the law should be changed to make Marion County's small claims cap consistent with courts throughout the rest of the state.

"I believe Marion County should have the same jurisdictional limits as the other 91 counties in the state of Indiana," Boulden said.

And some of Driver Solutions' former students may not have known they were being sued until it was too late to defend themselves.

Notification problems

In thousands of Driver Solutions cases, the small claims courts in Warren and Franklin townships didn't follow the process used elsewhere in the state to notify defendants they were being sued.

Boulden claims he found more than 800 cases in which judgments should not have been entered because the defendants weren't properly notified. The vast majority of judgments Boulden studied were "defaults," meaning that the defendants didn't participate in court.

The Star reviewed roughly 40 of the cases Boulden flagged and found issues with how those courts were notifying out-of-state defendants of the claims against them.

In Warren Township, the court sent its first letter of notification through certified mail. If the letter came back unclaimed, the letter was resent through regular mail. If the letter didn't come back to the court, the judge counted that as the defendant being notified.

Judge Garland Graves, who presides over small claims court in Warren Township, said his court stopped using regular mail to notify defendants in late 2011 or early 2012 at the suggestion of Marion Circuit Court Judge Louis Rosenberg.

The Star's review found several cases in which the defendant was notified through regular mail after that process was supposed to have ended.

In two of the cases reviewed by The Star — including the one involving Fred King — Graves said he would consider vacating the default judgments. King could not be reached for comment.

Graves said he and a member of his staff would review all of the small claims cases in which defendants had been notified through regular mail since he became judge in January 2011. If he sees any problems, Graves said he would likely schedule a court hearing with Driver Solutions' attorney to allow an opportunity to argue why the judgment should stand.

The judge said defendants also could ask the judge to reconsider their cases.

In Franklin Township, problems arose when the court's constable used "delivery confirmation" to notify defendants. Through delivery confirmation, the notice would be sent to the defendant's address on file regardless of whether that person was home.

It does not require a signature proving the right person received it.

Judge John Kitley Jr., who presides over the Franklin Township court, told The Star he didn't know that's how defendants were being notified and, if he had known, "I wouldn't have signed the defaults."

Such lack of uniformity among the township courts is one reason the judicial task force recommends moving small claims into the Superior Court system.

Conflict of interest?

Having nine independent small claims courts also creates more opportunities for high-volume companies such as Driver Solutions to influence court operations.

Franklin Township's Constable, Jeff Duhamell, told The Star he and former Driver Solutions attorney Brian Alsip developed the notification process together. The constable is responsible for notifying defendants in small claims cases. Constables receive a portion of the $86 fee charged for each case.

Driver Solutions files all of its cases in Marion County, and has filed the vast majority of them in Franklin and Warren townships.

Alsip denied influencing the notification process.

If there were any problems with using delivery confirmation, Duhamell said, "it should have been brought to my attention ... by the attorney or the courts."

Kitley said he found out sometime around the end of 2011 and, by early 2012, a new method was adopted at a different Driver Solutions attorney's request. It required a defendant's signature.

The judge said he strives to be fair to defendants. He said he takes care to make sure they're aware of their rights. If someone writes him saying that he or she wasn't aware of a lawsuit, Kitley said, he will immediately set the case aside.

Kitley said he couldn't have known about the notification method, because he wasn't privy to discussions about how that should be done. And the judge said he relied on another document, which he calls "a check on the system."

It's a check he now says Alsip evaded.

"False" affidavits

In each case, attorney Alsip signed an affidavit under penalty of perjury saying that the defendant had been "properly served," meaning the defendant was aware of the suit against him.

After reviewing cases with The Star, Kitley said he now thinks many of those affidavits contained false information because the defendants weren't properly served. Last week, he filed a complaint against Alsip with the Indiana Supreme Court Disciplinary Commission.

Alsip, who represented Driver Solutions in its small claims cases until earlier this year, denied any wrongdoing. "I have always followed the rules and procedures of the court while representing my clients," he told The Star in an email. "I have never developed or set up any court procedure, nor have I ever falsified any affidavit."

Michael Benkert, CEO of Driver Solutions' holding company Driver Holdings, said his business followed procedures and guidelines established by the courts.

"Following the review undertaken by the Small Claims Task Force, consultation with Judge Graves and after our own internal evaluation, Driver Solutions made the decision 15 months ago to change how it would pursue legitimate claims against debtors," Benkert told The Star in a written statement. "We are pleased with our business practices and remain committed to providing quality training and employment opportunities within the trucking industry."

Kitley said if the commission finds Alsip at fault, it would open the door for those cases to be re-examined and errors to be corrected.

"He may even be ordered to return all that money," Kitley said.

Though Kitley blames Alsip for the failure to notify defendants, a report by the small claims task force said it is ultimately the judge's responsibility to ensure everyone receives proper notice of a lawsuit.

Task force targets

The Indiana Supreme Court created the Marion County Small Claims Task Force in January 2012 to investigate whether people involved in small claims cases in Marion County were afforded the same access to justice as those in other Indiana counties.

The task force uncovered serious problems with the management and operation of the small claims township courts, such as creditors' attorneys receiving special access to court facilities in some courts, issues with properly notifying defendants who have been sued, defendants who were not fully informed of their rights and township trustees who interfered in court operations.

Changes were needed to make sure everyone was treated fairly, and to ensure "large-volume case filers do not appear to have special access to the courts," the task force said.

Rosenberg said many new rules have been put in place to fix problems identified by the township judges and task force. Rosenberg, who advises the township judges, recently instituted a number of trial rules to alter how the small claims courts operate.

"The operation today is better than it was a few years ago," he said. "But it can still get better, and it ought to."

Baker, who was part of the small claims task force, said the township judges are doing the best they can with the resources they have been given. He recommended the courts become part of the Superior Court system, a plan that is dependent on legislative action.

"I'm not telling them how to run the city-county government," Baker said. "I'm just telling them that the township courts should be held to the same standards and same rules as the other 91 counties."

Sen. Michael Young, a Republican from Indianapolis whose district covers Wayne and Decatur townships, said he hasn't heard of any problems from his constituents.

State Rep. Ed DeLaney, an Indianapolis Democrat who serves on two committees covering court issues, said he was aware of the task force's report, but that lawmakers didn't have substantial discussion about it in the 2013 session.

"I don't think we were prepared to deal with it," DeLaney said. "We may be now."

Star reporter Tim Evans contributed to this story. Call Star reporter Marisa Kwiatkowski at (317) 444-6135 or email her at marisa.kwiatkowski@indystar.com. Follow her on Twitter: @IndyMarisaK.